The holiday season is upon us, which means we’re dangerously close to that time of year in which we take stock in our lives, decide where we can make improvements and make those annual declarations that are often doomed for failure come mid-January.
Yes, I’m talking about New Year’s Resolutions.
The new year is a great time to make some big changes, but there’s no reason you can’t start planning your own self-improvement today – especially when it comes to kick-starting your credit score in 2013.
One of the best things you can do for personal financial growth in the coming year is improving your credit score. Why? Because a lower credit score means lower interest rates and more opportunity for the things you’ve always dreamed of; a home, a car or a small business loan.
So, while some of your New Year’s Resolutions for 2013 might be more realistic than others, make improving your credit score a point in the coming year by following these simple steps…
1.) Get a copy of your credit report
This is not to be confused with your actual credit score, which provides you with the number you need but not how you got there. Nope – a credit report works as the blueprint to your credit score, and is the very first thing you should access when seeking to rebuild your credit. Credit reports can be purchased for less than $20.
2.) Dispute inaccuracies and errors
As soon as you have access to your credit report, the next thing you should do is comb through it for errors. Errors on your credit report can happen more than you think and can be a credit killer.
If you find any inaccurate statements on your credit reports, write a dispute letter to the credit card company or credit agency. These are easy to craft and, upon receiving the letter, the collector (or lender) has within one month to respond to your dispute. Once the error is removed from your credit report, you’ll see a nice boost to your credit score almost immediately.
Again, this is one of the quickest ways to improve your credit score, so take the time and do your research, write the letters if you see any issues (they really only take a minute) and feel good about the fact that you’re really giving this New Year’s Resolution your all.
3.) Apply for a new credit card
No, seriously! While this might be a bad idea if you’re already carrying too many credit cards, a lack of credit cards in your wallet means a lack of credit history. And credit history plays a significant factor when applying for a loan, so strengthening your credit history can not only improve your credit score but also your chances of getting approved on a future loan.
If you have bad credit, consider a secured credit card rather than a poorly-reviewed unsecured card. Secured credit cards do require a security deposit, but they report to the major bureaus and often include credit monitoring services in their annual fees. These cards can work as a gateway to an improved unsecured credit card down the line, plus they’ll provide you with the information and services you need to watch your credit score improve.
4.) Get your credit card utilization ratio under 30%
Your credit card utilization ratio should always remain under 30% (and ideally even lower). What that means is, whatever your credit card line is, you want to use less than 30% of that. For example, if your credit line is $1,000, you don’t want to carry a monthly balance that exceeds $300 or it could have a negative effect on your credit score.
There are a couple of ways to address this. First, you could make some large payments on your credit card balance in a short amount of time to get that ratio under 30%. However, that might not be a reasonable strategy for every budget.
A second (and perhaps more reasonable) option is to transfer your balance to a new credit card with 0% interest. We already recommended applying for a new credit card, so if you have fair to good (or even excellent) credit but carry a balance, consider opening a 0% interest balance transfer card.
The idea is simple – transfer some or all of your debt (ideally enough to get that credit use below 30% on your current card) to a new card that doesn’t charge interest during its promotional period. This will help you in two ways: a.) you’re lowering your credit utilization ratio and b.) cutting your monthly interest fees. If you can transfer your entire debt, even better – just make sure that the debt you transfer is less than 30% of the total credit line on your new balance transfer card.
5.) Ease up on your credit card purchases in 2013
If you cut back your credit card purchases, you’ll rack up smaller balances, owe less, and lower your debt and credit utilization. We know it’s the holidays, but what good is a Cyber Monday deal if you have to pay high interest on that same purchase come 2013?
Lowering your usage will lower your credit score, but you shouldn’t eliminate credit card use entirely. A dormant credit account won’t help your credit score, either. It’s a fine line to walk, isn’t it?
Now that you’ve got your New Year’s Resolution plan in place, why wait ’til the ball drops on 2013 to get a move on a lowering your credit score? Consider a lower credit score a gift to yourself this holiday season.